Luke Gromen returns to lay out the trap: the deficit can't be cut without triggering a depression, so the Fed will end up capping bond yields by printing into an inflation spike. Plus the Hormuz supply shock, AI eroding the tax base, and why gold is leading the exit with Bitcoin behind it.
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Luke Gromen came back on the show this week, and he opened by telling me he has rarely felt this uneasy about where the macro picture is heading. That is not his usual register. Luke has been early and right on the sovereign-debt story for years, so when he says the clock has moved faster than he expected, it is worth slowing down on. His frame for the whole hour is simple and a little grim: the bond market is the thing keeping score now, and the math it is staring at does not have a clean way out.
We sat down against a backdrop that would be hard to make up. The 30-year Treasury yield was sitting above 5%, its highest level in nearly two decades. The Strait of Hormuz was effectively shut, with tanker traffic collapsed and thousands of mariners stranded in the Gulf. A new Fed chairman was transitioning in. And the AI build-out was running full speed into a supply chain that suddenly could not deliver the inputs. Luke's argument is that these are not separate stories. They all run back to the same place, which is a government that owes too much to do anything the textbook would tell it to do.
This is a macro conversation, but it lands on Bitcoin by the end, because Luke's read on the exit is that gold goes first and Bitcoin follows. Here is the case he made.
The spine of Gromen's argument is an arithmetic exercise he walked through out loud, and it is the part everything else hangs on.
Start with receipts. The federal government takes in roughly $5 trillion a year. Set against that, net interest on the debt has crossed $1 trillion annually and now ranks among the largest line items in the budget, behind only Social Security and Medicare. Stack entitlements on top of interest and you are already consuming nearly all of what the government collects. That is the box.
Now try to climb out of it. The stated goal in this administration was getting the deficit down toward 3% of GDP from something closer to 6%, which means finding cuts on the order of hundreds of billions of dollars. You cannot cut interest without cutting rates, and cutting rates feeds the inflation problem. That leaves defense and entitlements as the only pools large enough to matter. Gromen's read is that a cut deep enough to hit the target, something like a fifth off each, is politically impossible, and that even if you somehow did it, the recession that followed would shrink receipts and balloon the deficit anyway. His framing of the whole exercise:
If you ignore what's going on with sovereign debt, everything looks pretty good.
Which is to say it is the one thing you cannot ignore. Walk the math all the way through and Gromen lands where he has landed for years: they are going to cap yields. The honest path out, austerity that actually sticks, leads through a depression nobody will sign up for, so it does not happen.
If you accept that yields get capped, the interesting question becomes the mechanism. Gromen does not think the Fed wants explicit yield-curve control, the formal kind where the central bank simply pins the long end. He calls it the Hotel California problem: once you check in, you cannot check out.
The path he thinks is more likely is the indirect one, and it is the one Wall Street quietly prefers. The incoming chair cuts rates at the front end and shrinks the Fed's balance sheet by selling bonds, which pushes the long end up and steepens the curve. Then the regulations on banks get loosened so banks can step in and absorb those Treasuries without pulling lending back from Main Street. Gromen's description of it is blunt: that is quantitative easing run through the banking system with better marketing. The balance sheet looks like it is shrinking, but the buying just moves over to the banks, who do not care much about real returns as long as they can earn their spread. Inflation, in that world, runs hot and gets reported cool. Whatever the official number says, the bond market and the price level show it for what it is.
It is worth being precise about what is Gromen's forecast and what is documented fact here. The incoming Fed chair's policy mix is Gromen's characterization of where this goes, not a published plan. What is on the record is the backdrop that makes the cap necessary: long-dated yields at multi-decade highs and a refinancing wall the Treasury has to roll. For more on how that pressure has been building, I wrote up Japan's 30-year yield breaking 4% for the first time, which is the same movie one reel ahead.
Gromen's view is that the bond-market reckoning was always coming, and the Iran war pulled it forward in time. Strategically, in his telling, it was a mistake made without thinking through the bond market, because it forces the printing decision sooner than it otherwise would have arrived.
The supply side is where he gets specific, and where the second-order effects multiply. With Hormuz shut, the disruptions run well past crude. He pointed to warnings of a steep coming shortfall in motor oil, to sulfur shortages that feed into fertilizer, to freight insurers struggling to price the risk of moving anything through the Gulf at all. His mental model for it is Liebig's law of the minimum: a system constrained by its scarcest input. It does not matter that some regions get hit before others. One critical part goes short and things start seizing up everywhere, including here.
The closure has been described as the largest disruption to world energy supply since the 1970s oil crises, with Brent crude surging past $120 a barrel after exports stranded. Gromen's harder point is about who actually controls the timeline. The Western read, he argues, treats reopening as America's decision to make, the way tariffs got switched on and off. His read is that Iran retains real fire control over the strait and is being resupplied enough to buy time, at a moment when the United States does not have time to give. He has been saying since early in the year that the strait could stay closed far longer than markets were pricing, and so far that call has held.
The part of the conversation that cut deepest was about AI and labor, and Gromen comes at it from an angle most of the bull case skips.
He is not an AI doomer about the technology. He thinks it is genuinely, massively productivity-driving. His objection is to the people insisting it will not disrupt the labor market, and he named names, arguing that some of the loudest voices on that side are too smart to believe it and are talking their book. If the public conversation admitted how many high-paying white-collar jobs are about to be automated, the argument goes, politicians would get involved and try to tax the windfall into some kind of fund, which the people building it would rather avoid. He pointed to Ken Griffin, who he characterized as having recently come around to a far more sober view of what AI does to headcount in research-heavy businesses, as evidence the worry is moving from the fringe to the center.
Then he tied it back, the way he always does, to the debt. A productivity revolution in a low-debt economy is a problem you manage. In an economy where federal debt sits near 120% of GDP and interest already runs near 100% of receipts, automating away a big slice of high-income, high-tax employment is not a side issue. It is a direct hit to the tax base at the exact moment the government cannot afford that base to shrink. He put it starkly: you are replacing jobs that pay several hundred thousand dollars a year, and the taxes on them, with a subscription that costs twenty dollars a month. That is the strain, in his telling, that eventually breaks the thing, and it shows up in the bond market before it shows up anywhere else.
The natural pushback is that we have seen frothy tech markets before and survived them. Gromen's answer is that the comparison flatters the present.
He does not dispute that today's leaders are real businesses with real margins, unlike a lot of what traded in 2000. His point is the context around them. In the late 1990s, debt-to-GDP was roughly 40-50%, the build-out drove both productivity and employment, and the tech boom fed the government's tax receipts. Today the productivity gain is not showing up as employment gain, the largest builders are increasingly borrowing to fund the capex, and they are doing it against a federal debt burden far heavier than the country carried even after World War II, when debt peaked near 110% of GDP and was brought back down over the following decade. He also stressed that AI is not an American monopoly the way 1990s tech was. He pointed to the January 2025 DeepSeek shock, when a cheaper Chinese model erased close to $600 billion of Nvidia's value in a day, as proof the economics can be upended overnight from the other side of the world.
So where does the money go when trust in the core reserve asset frays? Gromen's answer starts with gold, and the data has caught up to him. As of this week, gold has overtaken US Treasuries to become the second-largest reserve asset held by central banks, at 27% of global reserves against 22% for Treasuries, per the ECB. He argues the plumbing for trade settling in gold is already built and hiding in plain sight, with offshore yuan clearing in every major gold hub, and he reads the trade flows, Swiss gold exports toward the Gulf in particular, as evidence some oil is already being settled outside the dollar. His line on which currency does the converting was the most Gromen sentence of the hour:
It's which Chuck E. Cheese token you use to buy the gold. Doesn't really matter.
The repeated freezing and weaponizing of dollar reserves, he argues, is what set this in motion, and it is why holders who can are quietly moving toward an asset no one else can freeze.
Bitcoin, in Gromen's framing, ends up playing the same role as gold, but it gets there on a different timeline and through a different door.
His near-term caution is honest. Right now Bitcoin trades like high-beta tech, and in an environment where rates are rising on high-beta tech, that is a headwind. He is candid that it has been a poor trade lately, and he is not trying to call a bottom. But his longer-term case does not lean on charts. It leans on the same insolvency logic that runs through everything else he said:
There's nothing more bullish for a neutral reserve asset than sovereign insolvency.
The distinction he draws is about who adopts first. Gold, in his read, is the officialdom's hedge, the asset central banks reach for. Bitcoin starts with people rather than governments, which is why it lags in the official-reserve data even as the same forces push in its favor. He noted the irony that the most pro-Bitcoin administration in history may end up trying to keep a lid on the price anyway, because it would rather see capital flow into the tech build-out than into the exits. Whether or not that is how it plays out, the underlying point is the one to sit with: the worse the sovereign-debt math gets, the stronger the case for an asset that sits outside it. For the longer version of why these debt dynamics are the core Bitcoin story, Luke laid it out in detail in his last appearance, on how China is accelerating the US debt spiral.
The conversation closed somewhere unexpected, on raising kids into a world this uncertain, with three of his sons at draft age and one of them job-hunting out of school into a labor market that does not look the way it used to. His advice was plain and had nothing to do with markets: tell them what they need to know, keep the lines open, and teach them to get back up. It was the most human stretch of the hour, and a reminder that the macro abstractions land on actual families. The world is going to change, as it always has. Understanding how it is changing is the part that matters.
Luke Gromen is the founder and president of FFTT, LLC, a macroeconomic research firm he launched in 2014 that publishes for institutional and individual investors. His work focuses on the intersection of sovereign debt, the dollar system, energy, and reserve assets, and he is one of the most-cited independent voices on the structural pressures bearing down on the Treasury market. He is a recurring guest on TFTC.
